Final Revision Of Fourth-Quarter GDP Better--But Still Not Good

The Department of Commerce had better news for Americans this morning, but still not the kind of tidings that would be expected to put smiles on the faces of the economic pundits and market watchers alike.

Specifically, Commerce noted that the nation's economy, or gross domestic product, which had first been reported to have fallen by 0.1% in the final quarter of 2012, and then revised to show a gain of that token amount, had been forecast to have increased by 0.6% in this latest, or final revision to last year's final period. However, that revision showed a more subdued increase of just 0.4% in the concluding quarter of 2012.

This latest estimate, which was based on more complete source data than were available for the second GDP estimate issued last month, primarily reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, and residential fixed investment.

Conversely, the deceleration in real GDP in that quarter--from the third quarter when growth had totaled 3.1%--largely reflected downturns in private inventory investment and federal, state, and local government spending.

It should be noted that this tepid performance was not as weak as the numbers would suggest, while the third-quarter advance was nowhere near as formidable as indicated by the raw numbers. That was largely because of the sharp divergence in both inventories and government spending. Those variables, it is worth noting, are likely to be in better balance in the fast-concluding first quarter of 2013, when we could very well see GDP gain more than 2%, with some estimates being closer to 3%.

We think a better way to look at these last two concluding quarters of 2012 would be to average them, which would give us a growth rate on the order of 1.7%-1.8%. That probably would be a truer picture of what was then going on in the domestic economy.

As to our economy at present, most indicators, including data on housing, industrial production, durable goods orders, employment, and manufacturing are pointing in the right direction. However, a recent sharp reversal in consumer confidence bears some watching as do the fragile situation in Europe, notably in Cyprus and Italy, and the ongoing inability of the two parties in Washington to come up with a realistic budget accord.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.